Galaxy Surfactants Limited (GALAXYSURF) Q1 FY23 Earnings Concall Transcript

Galaxy Surfactants Limited  (NSE:GALAXYSURF) Q1 FY23 Earnings Concall dated Aug. 10, 2022

Corporate Participants:

Unnathan Shekhar — Promoter and Managing Director

K Natarajan — Executive Director & Chief Operating Officer

Abhijit Damle — Chief Financial Officer

Analysts:

Sanjesh Jain — ICICI Securities — Analyst

Rohan Gupta — Edelweiss Securities — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Anupam Tiwari — Axis Mutual Fund — Analyst

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Krishan Parwani — JM Financial Ltd. — Analyst

Pujan Shah — Congruence Advisors — Analyst

Mayank Purohit — Kamakhya Wealth Management — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Galaxy Surfactants Limited Q1 FY ’23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Unnathan Shekhar, Promoter & Managing Director of Galaxy Surfactants Limited. Thank you and over to you sir.

Unnathan Shekhar — Promoter and Managing Director

Thank you. A very good afternoon ladies and gentlemen. Welcome to this first quarterly earnings call for FY ’23 and let me wish all of you and your family members a safe and healthy living. In the financial year 2016, Galaxy’s full-year profit stood at INR101 crores.

It gives me immense pleasure to share with you all that despite numerous challenges we have witnessed in the last six years, Galaxy’s march has consistently continued. As we see the world gradually moving back to normalcy, the year FY ’23 began on a very positive note for your company as well.

For the first time in the history of Galaxy, we have crossed the INR100 crores profit mark. Despite facing a setback in Q2 and Q3 of last year, we not only rebounded in Q4, but we were also able to sustain the momentum in Q1 of FY ’23. Improving supply chain conditions, better mix, realizations, new-age products, and leveraging on emerging opportunities have helped us achieve this growth. As you would have noticed, our EBITDA per metric tonne for the quarter stood at INR26,418.

While we have a good start the strong persistent inflationary headwinds impacting both the developed and developing economies though with varying intensity remains a cause of concern for us. As stated previously, FY ’23 will be all about managing supply as well as demand side risks. While supply side factors did improve in this quarter, they are yet to revert to pre-pandemic levels.

This inflationary scenario globally combined with the deterioration of macro factors of a few countries severely has impacted the mass categories, which in turn impacted our performance surfactants volumes and this impact was particularly adverse in AMET. The AMET region declined by almost 21% year-on-year.

The energy crisis in Europe and the impending slow down remains a cause of worry and risk for our speciality care products going ahead. This is reflected in our ROW performance, which declined 5.5% year-on-year.

However, on the brighter side demand in India continued to remain stable and showed signs of improvement quarter-on-quarter by growing 8.5%. With the upcoming festive seasons, we believe the demand will pick up momentum from Q2 onwards. Recently keeping in mind the needs of the future, Galaxy launched shampoo bar base Galseer Tresscon.

These are a solid bars of shampoos prepared with solid surfactants system that finds best fit value as it enables multiple sustainability elements such as reducing the usage of fuel, space, utilities and water. The ingredients used are also sustainable and are derived from our patented amino acid based green chemistry. This is in line with our overall sustainability initiatives.

The earlier planned capacities have got commissioned in this quarter and will help us grow in terms of value. While Q1 FY ’23 has been a good start, going ahead a conducive environment will be helpful to ensure that the momentum continues. At Galaxy, we remain committed to enabling and ensuring the same. Thank you, ladies and gentlemen.

Operator

Sir, should we open up for questions?

Unnathan Shekhar — Promoter and Managing Director

Yes, please.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities. Kindly proceed.

Sanjesh Jain — ICICI Securities — Analyst

Good afternoon, Sir. Thanks for taking this question and a few from side, this quarter looks like performance in two halves, India still struggling, I mean standalone still struggling, margins are dipping while the consol minus standalone, which I think the pre-dominantly is our U.S. and Egypt, there the margins continues to increase significantly. Now we are there at 23% EBITDA margin, 48% gross profit margin, two part in it. How is the U.S. doing? Number two is that specialty which we are manufacturing now and supplying to U.S. a significant portion of margin is captured in the U.S. subsidiary and this is despite the weakness in Egypt, so with this I think Egypt still continues to struggle. So what is driving such a strong performance in the non-standalone entity and what is the steady state margin should we look at there. That’s my first question.

Unnathan Shekhar — Promoter and Managing Director

Sanjesh, yes, the U.S. has done well and has been pretty consistent in the last maybe 18 to 24 months and touchwood, we would expect it to continue, but we have to be candid enough to say that one does see stress on consumption even in the U.S. market. That said, the U.S. operations also sells products of Galaxy because as you know it is important that we maintain the stocks of these products at the warehouse in USA so that we are able to serve our customers from our warehouses there. So a number of specialty products which goes from India gets serviced through the U.S. subsidiary.

So Egypt has certainly declined, but when you talk about India, Indian volumes have grown certainly in the last quarter. We have grown higher than market, we have taken shares, but there are still a lot of what I would call operational bottlenecks which emerge because the supply chain situation has not come back to real normalcy. Even today, there are certainly significant amount of disruptions and disturbances continuing and these are in level in terms of having what I would call, a rhythmic performance as far as India is concerned in terms of operations.

Sanjesh Jain — ICICI Securities — Analyst

What is driving such a strong growth in U.S., can help us understand, protein because I do not think we have expanded so much.

Unnathan Shekhar — Promoter and Managing Director

So as far as U.S. is concerned as you said the introduction of these new products certainly had driven growth one, of course also the innovation on proteins that we do has been driving our growth as far as the protein segment is concerned in U.S. First this introduction of specialty products made at the Galaxy India, these are also sold very well in U.S.

Sanjesh Jain — ICICI Securities — Analyst

No, that I got the point, I am telling you what is this incrementally driving the strong growth, is the combination of all this product, it is mild surfactant portfolio, it is preservative portfolio, it is protein portfolio and how much will be the volume?

Unnathan Shekhar — Promoter and Managing Director

You have seen Sanjesh, you would have seen that our concern will be the volume degrowth that we have seen at the overall level, so the strong performance has been because of the mix and the introduction of new products.

Sanjesh Jain — ICICI Securities — Analyst

Okay and sir, Egypt the mix will fall more towards performance and marginalization, is it a fair understanding?

Unnathan Shekhar — Promoter and Managing Director

Yes, yes. Yes, yes.

Sanjesh Jain — ICICI Securities — Analyst

Continuing with the margin, now we are at INR26 per kg kind of EBITDA, our guidance is INR16,000 to INR18,000, it looks like we have come a long way from INR16,000 to INR18,000, so we still want to stick with INR16,000 to INR18,000 or we think sustainably we have to move?

Unnathan Shekhar — Promoter and Managing Director

Sanjesh, we have a particular mix of performance surfactants and specialty products in mind, okay? Now there may be temporary deviations with respect to this and particularly in the last one year or 18 months, the deviations have been one too many, there have been a whole lot of disruptions as well as volatilities whether you talk about the geopolitical unrest or various different markets behaving in different ways at different points of time. So we need to see some element of what I would call a rhythm or a steady state, which has not been there for the almost 18 to 24 months.

K Natarajan — Executive Director & Chief Operating Officer

One other reason, it’s Natarajan here, Sanjesh, is that we also need to factor in, given the severe inflationary scenario during the recession, if you look at our specialty portfolio, we have a good portfolio in terms of a new age products, a good pipeline of projects in place, good amount of combustion has happened, but given this scenario, we cannot rule out, okay, maybe some of the customer reformulating, because they need to manage their cost structure, which will be temporary, but we need to be conscious of that as well. So that’s one of the reasons why we don’t want to be getting — changing the band beyond the INR16,000 to INR18,000 but we will be at the higher end of this band of INR16,000 to INR18,000.

Sanjesh Jain — ICICI Securities — Analyst

Natrajan, sir, just to put in, to understand this finance…

Operator

Excuse me, Mr. Jain,I’m sorry to interrupt, sir.

Sanjesh Jain — ICICI Securities — Analyst

This is a follow-up, last one. Just a follow-up and the last. Just to understand that, is this EBITDA underlying INR150 crores, what we have done in this quarter, forget about the EBITDA per kg and all. Is this INR150 crores is sustainable and can grow from here? Now considering this is on a lower volume, our volumes will come back. Do you think this INR150 crores is a sustainable and this becomes a new base and we will grow it from here?

Unnathan Shekhar — Promoter and Managing Director

We would aspire it to be there, yes. I think all of us would like it to be there. But as we said, there are a whole lot of challenges, which are possible. We don’t want to be blind to that, okay, so we would certainly be careful and alert both to the opportunities as well as to the challenges that can emerge.

Sanjesh Jain — ICICI Securities — Analyst

Yeah. Okay, fair, sir. I will come back in the queue for more questions. Thank you and best of luck for the coming quarters.

Operator

[Operator Instructions] The next question is from the line of Rohan Gupta from Edelweiss. Kindly proceed.

Rohan Gupta — Edelweiss Securities — Analyst

Yeah, hi, sir. Good morning and congratulations on such a strong set of numbers despite we have seen the pressure on volumes. Sir, I just — extending from the previous conversation that definitely the performance from non-surfactants specialty business has been very solid and especially coming from the developed markets. You gave that reason for that is basically the new product launches, which has led to strong profitability and higher margins. Once we come back to the previous level in terms of product mix with higher revenues coming from the surfactants, then you are cautioning us that may go back to the previous level, or your earlier guidance of INR16,000 to INR18,000 per tonne.

Sir, the products which we have launched our definitely new age and a clear indication that we have ability and capability of launching new age product with a very high margin from the — which are much higher than the current business, then only we are probably able to enjoy INR25,000 to INR26,000 EBITDA per tonne what we are enjoying right now. So the question which I have is that are there any doubts or issues you think that — in our ability to keep on launching new such products in next one years to two years that we keep on improving our product mix.

I’m not saying that we want to get away from our basic surfactant business model, but I’m saying that the performance, which has been driven in last one and a half-year and then we have commissioned our specialty chemical business in last year with the additional capacity, why we think or assume that the specialty part of the products or high value added products will not keep on driving the revenue growth even in next one to two years also?

Unnathan Shekhar — Promoter and Managing Director

See, Rohan, thank you. See, we have seen the end use market, and particularly this year, because of the real hyperinflation, the stress on consumption, we have started experiencing across various markets. Customers when there is hyperinflation, like it happened about three years back, four years back, tend to downtrade and when that happens, the store brands start gaining traction for that particular period of time. Of course, the customers — I mean consumers come back to the mass and masstige. When we talk about specialty, as you know, the specialty products find use or find their place in masstige and prestige brands and they have to consistently grow, which can be challenged during times of hyperinflation. So we know that we have talked about various trends on sustainability, going to prestige, but these premises get challenged during difficult times for a consumer and the difficult times can be when there is hyperinflation, which is what has happened now.

Now, once the things start regularizing, and we have seen, the commodity prices have started sharply coming down. Now, when that happens, I think the customer has certain flexibility in his wallet to indulge in prestige products also. So we would apprehend a temporary challenge, possibly, to this Specialty growth. However, what I want to say that we have had a continuous stream of innovations over the last 10 years or so. Galaxy has built its specialty portfolio significantly over the last year and we will continue to build. New products will keep coming up, but at the same time, we have to ensure that we do not ignore the broad market in all the emerging economies as well as evolving economies, particularly the AMET region and African region because Galaxy would like to be present across various consumer segments as a part of its strategy, both in emerging markets as well as developed markets.

Rohan Gupta — Edelweiss Securities — Analyst

Yeah, okay, got it. So, sir. I think we are expecting hyperinflation and we are feeling that. However, the raw material prices have already started coming down as you rightly mentioned and is already down by almost 30%.

Unnathan Shekhar — Promoter and Managing Director

Right.

Rohan Gupta — Edelweiss Securities — Analyst

I think that definitely, we are not expecting the prices to go back to the previous level, but yes, I think that even they are also not likely to remain at the peak what had seen probably in the month of Feb or March. So now with the softening of the RM prices and assuming that it’s a — I mean whatever the current prices and assuming that 10% to 20% further fall and then prices — RM prices stabilizing there, what you see and think that our percentage or EBITDA per tonne margin can sustain? I hear you that you are continuously maintaining a INR16,000 to INR18,000 at the upper-end guidance, but do you see that if the RM prices sustain here, maybe be 10% lower from here, can we expect our EBITDA percentage margins what we are enjoying right now in terms of percentage can sustain like 13% to 14%?

Unnathan Shekhar — Promoter and Managing Director

Yeah, so, Rohan, let us wait for a few more quarters before we come to a secular trend. Let us wait for a few more quarters.

Rohan Gupta — Edelweiss Securities — Analyst

Okay. Got it. Sir, just a next question and I’ll come back in queue for further follow-up. Sir, we have seen that our specialty products capacity launched last year. If you can give us some sense in kind of the utilization will be there and what our utilization rate is right now and our capex plan for the current year and I think that our capex will be much lower than the free cash flow, which we will be generating. So what are the plans for our additional free cash flow this year? That’s it.

K Natarajan — Executive Director & Chief Operating Officer

Rohan, so it’s Natrajan here. So our capacity inflation has been about 64% and the capacity added were on to the specialty Ingredients segment, and which obviously is that we have started clinical capacities in line with the way the projects of the customers are maturing. With regard to deployment of the cash, we have said, typical our capex outlet would be about INR150 crores per annum, and we do have projects that will been rolled out on both the Performance and Specialty Ingredients segment over the next two years. So per annum, it’ll be around INR150 crores of capital outlay on our expansions.

Rohan Gupta — Edelweiss Securities — Analyst

Okay. Thank you, sir. Thank you very much.

Operator

[Operator Instructions] The next question is from the line of Rohit Nagraj from Centrum Broking. Kindly proceed.

Rohit Nagraj — Centrum Broking — Analyst

Thanks for the opportunity and congrats on a very strong set of numbers. Sir, first question I mean asking on the EBITDA per tonne metric. So is it differs where you are seeing a lag in terms of the input cost inflation which has been passed on and prior to two quarters back we had struggled to keep the EBITDA per tonne at our current levels and because of which this impact has come in Q4 as well as Q1 and incrementally as the raw material price substance based on your commentary it will normalize to our INR16,000 to INR18,000 tonnes level, is that the right understanding?

K Natarajan — Executive Director & Chief Operating Officer

Yeah, that’s the right understanding. Only thing is what we need to — when we were in Q2 and Q3 of last year where the performance was severely impacted, we said the raw material prices have been increasing pretty — both the frequency and the intensity of the increase was pretty high. And by the time we were passing on one increase, the price would go up further. And from Q4, it stabilized, although at higher levels and that continues. So you’re right in that understanding because it enables us to then not have impact because we’ve have not been able to pass on, because you pass on, say, with a lag of a quarter.

Rohit Nagraj — Centrum Broking — Analyst

Right, right. Got it. The second question is in the last couple of quarters despite the lower volume where the domestic side depend of the supply chain challenges probably faced by our competitor and we had to supply at times across different geographies because of which we had been able to charge slight premium instead of the normal pricing? Thank you.

Unnathan Shekhar — Promoter and Managing Director

Can you repeat your question, Rohit, I couldn’t hear it clearly.

Rohit Nagraj — Centrum Broking — Analyst

Right. So in Q4 and Q1 because of maybe supply chain challenges faced by competitors, where we benefited in terms of pricing premium for our products because our products are available at different geographies?

K Natarajan — Executive Director & Chief Operating Officer

No, see, it was a — like I said, there were opportunities that were presented the challenges but I think the story of the last quarter has been where we managed challenges well and leveraged on the opportunities that were presented.

Rohit Nagraj — Centrum Broking — Analyst

Right, right.

K Natarajan — Executive Director & Chief Operating Officer

And also, what is important that, given this particular uncertainty in terms of various economies being in trouble, so we have also been choosy in terms of which customers we’ll be selling to because there is also a risk that we need to be very wary about just in case the economy is not doing well, the customers base there, so how do we then recalibrate our customer portfolio. That’s also been one way that we have been able to rejig our customer portfolio to aid our numbers.

Rohit Nagraj — Centrum Broking — Analyst

Right. Got it. Sir, just one last clarification…

Operator

Mr. Nagraj, sorry to interrupt.

Rohit Nagraj — Centrum Broking — Analyst

Yeah, I’ll come back in the queue.

Operator

Yes, thank you. [Operator Instructions] The next question is from the line of Anupam Tiwari from Axis Mutual Fund. Kindly proceed.

Anupam Tiwari — Axis Mutual Fund — Analyst

Yeah, good morning, sir. Hello, can you hear?

Operator

Yes, sir, we can hear you.

Anupam Tiwari — Axis Mutual Fund — Analyst

Hello, can you hear me?

Operator

Yes, Mr. Tiwari, we can hear you.

Anupam Tiwari — Axis Mutual Fund — Analyst

Okay. Good morning, sir. Sir, wanted to understand little in detail if possible in terms of green surfactants. So I’m sure you guys also have green surfactants in your portfolio, but the way things are being defined now, so whether, let’s say, a sulfate free surfactant can be classified as a pure green surfactant or it’s a partial green affected, and is there any newer kind of products, which are very different technologies are being accepted in market as green surfactant and where our product development stands in terms of this journey to reach to cure green surfactants, if you can help us understand?

Unnathan Shekhar — Promoter and Managing Director

Yeah. Thank you. Anupam I think Galaxy has been a significant player and leader as far as green surfactants are concerned. As you know, our amino acid surfactants which has a world patent, an exclusive patent is totally based on green chemistry, which gives us a very exclusive edge, one. Again, our non-toxic preservatives are from green sources. We introduced a product called sodium lauryl oxalate which is totally green surfactant cum emulsifier in this particular year. And as a matter of fact, a significant amount of growth that we’ve seen in the last three years with respect to specialty products have come from our green chemistry, green innovations and this is an important priority as far as the organization is concerned. So sustainability is built-in in our developments.

So a whole lot of our specialty products are based on green chemistry where the effort is with respect to add on efficiency, recycling, very, very negligible or minimal environmental footprint, no wastage. So these are the various elements of green chemistry. As a matter of fact, our patent that we have fulfilled all the principles of green chemistry and this has been very well acknowledged not only by industry bodies, our competitors, our customers. As you know, we received the P.C. Ray award instituted by the Indian Chemical Council last year for our innovation with respect to the amino acid surfactants.

Anupam Tiwari — Axis Mutual Fund — Analyst

And sir, how is the competitive situation over here, globally, in terms of offering pure green products?

Unnathan Shekhar — Promoter and Managing Director

See, Anupam, see as far as the personal care industry is concerned, there are a whole lot of products, there are huge number of customers and huge number of players also. So when you talk about edge, yes, one does have an age when you play in the same logistics, but different players have different interests in different niches. That is a reality as far of the personal care market is concerned, because there is a place for a large number of people.

Anupam Tiwari — Axis Mutual Fund — Analyst

Very true. And in terms of customer acceptance — what I’m talking about this is end customer acceptance, not your client, for green products. I’m sure they would be expensive. So in terms of cost acceptance, how it is panning out globally?

Unnathan Shekhar — Promoter and Managing Director

No, no, no. So fear, it is only — it is one off, let us say, what you are creating and responding to the various emerging consumer needs, and emerging consumer needs are certainly distinctly towards sustainability and green, non-toxic and less amount of, what I would call, so-called ingredients. People want least number of ingredients as possible. So that is where our consumers — and this consumer is primarily at a very high — significant level in the U.S. and the Europe markets, and India is again catching up. So we do see a consistent growth of specialty products even in India, though, albeit, it is not as comparable as what is in U.S. But it is a significant and a definitive trend which is happening.

Anupam Tiwari — Axis Mutual Fund — Analyst

And sir, in terms of regulatory requirements on the surfactant side, are you seeing any change in the next couple of years?

Unnathan Shekhar — Promoter and Managing Director

Yes, yes. Yes, particularly in U.S. is a very, very major change happening on products, both whole care products are expected to have dioxane less than 1 ppm. This is a New York directive which has come, which will go live by the end of this year, that is starting 1st January, 2023. This is a very, very major change, and Galaxy is already ready.

As a matter of fact, one of the major innovations for this year and the introduction is a product called GalEcoSafe, which is a sodium lauryl ether sulfate, where we have been not only present, but a significant player globally and that will have a dioxane content of less than 5 ppm or 10 ppm which ensures or enables the final consumer products to have dioxane less than 1 ppm.

So these are regulatory challenges which have come as opportunities. We have responded to them, we are ready with the products and we have already made a foray into certain markets such as in both Europe as well as U.S.

Anupam Tiwari — Axis Mutual Fund — Analyst

And sir, just to…

Operator

Mr. Tiwari, I’m sorry to interrupt, sir. We request you to kindly get back in the queue for further questions.

Anupam Tiwari — Axis Mutual Fund — Analyst

Okay.

Operator

Thank you. [Operator Instructions] The next question is from the line of Bobby J. from Falcon Investment. Kindly proceed.

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Yeah, hello. And the question is EBITDA per tonne [Technical Issues] 40% above the lower end of your range.

Unnathan Shekhar — Promoter and Managing Director

We can’t hear you, I’m sorry. Can you please repeat it?

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Yeah, talking about the EBITDA per tonne, where for the past two quarters has been around 40% higher than your normal range of INR16,000 to INR18,000, so if you’re actually saying that you will revert to the INR16,000 to INR18,000 and your volumes don’t go up drastically, that would have a big impact on your profits.

Unnathan Shekhar — Promoter and Managing Director

See, as we said, there are a couple of parameters, which were at play in the last two years. One was of course the supply chain geopolitical disturbances and the supply chain disturbances which impacted your rhythm of operations. Both the predictability of operations, the planning of operations, the rhythm of operations and the output of operations. Apart from that, the challenges with respect to outgoing cargo also put a spoke in terms of your dispatches and deliveries. So there was a huge supply chain elongation which the world experience, including us.

The second thing is, of course, because of these geopolitical uncertainties, there was hyperinflation which impacted consumption and the impact or the stress on consumption, we are seeing it in a more pronounced way in the last quarter and possibly in the existing quarter, that is quarter two of the financial year, that is, July to maybe, September, which we expect we would see a stress on consumption in this quarter.

The third is, a number of economies, particularly, have been — gone into weakening, as a result of which, we have been very, very choosy about customers because we want to protect ourselves against default. So that has also been where we have withdrawn ourselves with respect to certain economies and certain markets and that’s a very conscious decision, which we’ll get back to once things come back to normalcy. So it is important that the world to comes back to normalcy howsoever hopeless or hopeful it may seem. We would like the world to come back to normalcy so that there is predictability.

Till that time, there will be an element of opportunism, which is inherent and there will also be these deviations that we have seen, but in a secular assumption, because the entire EBITDA guidance that we’ve given is based on a particular secular assumption. So for the next maybe, let us say, three or four quarters is concerned, and that’s why we said that let us wait for a couple of quarters, but for the next three or four quarters is concerned, we would like to say that we would be at possibly the higher-end of the EBITDA guidance that we have given.

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Mr. Shekhar, I perfectly understand all that you have described and we are well aware of it. I guess, my specific question is are you saying that when your EBITDA per tonne reverts back to the original state, your volumes would go up drastically?

Unnathan Shekhar — Promoter and Managing Director

Yeah, yeah, yeah, obviously.

Bobby Jayaraman — Falcon Investment Advisors — Analyst

That is what I’m trying to understand, because we want to — what we are concerned about as investors is your absolute profits. If EBITDA per tonne goes down and the volumes don’t go up, your absolute profits will come down. It’s just mathematical. So if I understand you correctly, what you’re saying is as the consumption picks up, your volumes will climb up and because there’ll be more performance surfactants, your EBITDA per tonne might edge lower, but the the absolute numbers trend should continue. Is that understanding correct?

Unnathan Shekhar — Promoter and Managing Director

Yeah, right. Your understanding is right.

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Okay, thank you. So the other question was, there was a drastic fall in fatty alcohol prices this quarter. So did you have — but your presentation doesn’t mention any inventory losses or MTM losses or any such thing. So how did you manage that?

Unnathan Shekhar — Promoter and Managing Director

We have explained this, we have a very good risk management mechanism to ensure that the impacts are minimal. I mean, it’s not that we will be totally immune to any impact, but the impacts are pretty minimal and so that has been the case. So we have not had any significant impact because of this.

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Would you have to pass the lower prices on to your…

Operator

Mr. Jay, I’m sorry to interrupt, sir…

Bobby Jayaraman — Falcon Investment Advisors — Analyst

It’s just part of the question, just let me complete, please. Just part of the same question.

Operator

Sure.

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Would the lower prices be passed on to your customers?

Unnathan Shekhar — Promoter and Managing Director

Obviously, yes. The competitive market or the competitive scenario ensures that ultimately the benefit of lower prices on feedstock will go to ultimately the consumers.

Bobby Jayaraman — Falcon Investment Advisors — Analyst

Okay, all right. Thank you. That’s all.

Operator

Thank you. The next question is from the line of Krishan Parwani from JM Financial. Kindly proceed.

Krishan Parwani — JM Financial Ltd. — Analyst

Yeah, hi, sir. Congrats on a good set of numbers. So just two questions from my side. So, the first is, just wanted to check, has there been any addition of value added products in your Performance Products portfolio over the last couple of quarters?

Unnathan Shekhar — Promoter and Managing Director

We did mention, as far as performance products is concerned, our new — the innovation that you got, we worked on our GalEcoSafe. The SLE is having very, very law dioxane, which would help our customers to meet the New York regulations with respect to dioxane. So both, we have already launched this in Europe as well as USA and we have already done significant amount of business or some businesses on this thing with our customers in Europe and U.S.

Krishan Parwani — JM Financial Ltd. — Analyst

So just on a follow-up on that, so what was the contribution of these in the current Performance Surfactants? Like maybe, a ballpark number should do, not an exact number.

Unnathan Shekhar — Promoter and Managing Director

Not a very, very big number. It will gradually climb because the regulation will kick in only from 1st of January. Whatever we have done, or whatever customers have brought it, is the form of our preparation for themselves. The regulation starts kicking in only from 1st of January, 2023.

Krishan Parwani — JM Financial Ltd. — Analyst

Understood. And the second question is that — so basically whatever price jump that we are witnessing in the Performance Surfactants is mainly driven by the higher input cost. Is that correct? Because you mentioned that value-added products addition is only limited.

Unnathan Shekhar — Promoter and Managing Director

Yeah, yeah, you right, you are right. See, in Performance Surfactants, there’s a very clear correlation at the market level between your feedstock prices as well as the final selling prices.

Krishan Parwani — JM Financial Ltd. — Analyst

Understood, understood. That is very helpful sir and wish you all the best. Thank you so much.

Unnathan Shekhar — Promoter and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Pujan Shah from Congruence Advisors. Kindly proceed.

Pujan Shah — Congruence Advisors — Analyst

Hello, sir. Actually, I just wanted to have a broad outlook on performance in Specialty. So we have a revenue segregation on Performance and Specialty and — so on moving trajectory like four to five years, will be on the same line or Specialty will contribute to let’s say 50:50 or so? So can you just give some trajectory towards that.

Unnathan Shekhar — Promoter and Managing Director

Yes, see, we have always said that the split between Performance and Specialty will be 65:35, but this ratio will certainly go towards maybe to 60:40 or even maybe 55:45 but not overnight or immediate, but over a horizon let’s say five to 10 years or so.

Pujan Shah — Congruence Advisors — Analyst

Okay and sir, my broad understanding would be, so majority of our sales, you can say, would be on Performance, but the margins would be contributing from the Specialty. So more of the margin performance improvement will be from the Specialty and the sales performance could be majority from the Performance, right? Is my understanding correct?

Unnathan Shekhar — Promoter and Managing Director

Yes, yes. Yes, yes.

Pujan Shah — Congruence Advisors — Analyst

Okay and my second question would be, can you just give us some — like, I was seeing the presentation in that — can you just give us the Top 10 contribution products, like how much contribution to this revenue, you’d give us. Like, if Top 10…

Unnathan Shekhar — Promoter and Managing Director

We wouldn’t be able to talk on that. We wouldn’t be able to talk on that.

Pujan Shah — Congruence Advisors — Analyst

Okay, sir. That’s all from my side. Thank you, sir.

Operator

Thank you. The next question is from the line of Sanjesh Jain from ICICI Securities. Kindly proceed.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, thanks for taking my question again. A few more on the volume side. Wanted to understand how are we trending on month-on-month basis for that. I know for the quarter, we have declined by 29%. Last quarter it was 29%. Just wanted to understand the progression. Is it on the improving side, are we seeing the pressure coming down? That’s one.

Number two, on the rest of the world side where we had declined 5.5% in the volume terms, like, last quarter, it was positive and now that given that we have commissioned the plant that should give us the momentum in the new product as well, how should one think about volume progression from here? This is on the premise that India will continue to do good, because now we are approaching the festive season, the pressure on raw material side is coming down. So that will give some more push on the volume. I just wanted to understand how are we thinking of volume progression from here to say, for next four, five quarters.

K Natarajan — Executive Director & Chief Operating Officer

Yes, so, Sanjesh, as far as the AMET volumes are concerned, I think it would have to be — we’ll have to wait for the Egypt and Turkey market to really start coming back once they adjust to the significant inflation that they’re having. So that’s why we’re very critical. And to your question, whether we are seeing some green shoots and we see improving trends, I would say that directionally improving, but will not be able to make any comment whether they’re sustainable because we’ve also had Eid, which was there in the month of July. So we are not able to make — so, probably we’ll be able to make clear statement on the direction by end of this quarter. That’s one.

Second, with regard to the rest of the world, it is driven majorly by Specialty Ingredients and only thing that we would want in terms of a conducive environment is that we have the inflationary situation correcting, the recession not prolonging, and that should enable us to be able to continue and leverage on the various projects that have matured in Specialty Ingredients with many of our customers.

Sanjesh Jain — ICICI Securities — Analyst

No, no, just to continue there, on the volume front, are we seeing any destocking, because in the fallen prices, and this commentary has come from multiple chemical companies, the customers tend to destock because they fear that they will continue to fall. And then to — so they keep destocking and they buy only, just in time, kind of a requirement.

K Natarajan — Executive Director & Chief Operating Officer

Yes. So if you…

Sanjesh Jain — ICICI Securities — Analyst

Is it also adding to the volume thing?

K Natarajan — Executive Director & Chief Operating Officer

So that’s also one of the reasons, but then if you look at, say, U.S., there is good amount of destocking that is happening which is what many of our big customers who have been talking about, this being one of the reasons why their volumes have been lower. Because one is, the pantry stocking that was done by the households also has come down, which is then passed on into the chain wherein you have all the big stores with the Walmart and all of them also destocking. That is one of the reason why it’s happening.

Second is with the reducing prices, yes, they would want to be on the lower set of the inventory in the pipeline so that’s the impact in terms of a significant correction is limited in terms of the financial impact. So there are multiple reasons but one major reason why all this is happening is the consumer demand itself is correcting from the highs that we have seen earlier because of the inflationary scenario. Only thing that can correct all this is the consumer demand because destocking and all this is only a response by customers to take it off the situation, but the moot [Phonetic] point is how do we ensure — how does the consumer demand come back to the robust levels than it was, say, last year.

Sanjesh Jain — ICICI Securities — Analyst

If I hear you properly, we are giving a very cautious statement on the volume growth, particularly Europe, U.S., where we are seeing spreads. Are we seeing demand really slowing down or it’s just a transitory phase? Are people are really facing the pinch and now — because I think from the peak of the inflation, now we are only coming down the road and our inflation will be lower than what it was earlier. So probably, worst is behind on the inflation and our performance, even during the inflation, was very incredible performance. Why are we turning so cautious? Where we can — and it is probably more imminent that the inflation will only…

K Natarajan — Executive Director & Chief Operating Officer

One of the reason is, if you see the demand cutback is happening it has started only beginning of last quarter, and the commodity price also start correcting only towards middle of the last quarter, so for things to settle down, come back and regain their robustness is something that we need to wait and watch, the others also in terms of Europe, the energy crisis is going to have its own implications, so we need to wait and watch, so it is a combination of factors, although we would want things to pan out the way that you have been articulating that is what is going to be good for us and that is what the conducive environment that we would want it to be there for us to be able to churn out good volume numbers, but yes, we are not able to make any clear statement because of the headwinds that we are already seeing in the market by the commentary that our customers are giving.

Sanjesh Jain — ICICI Securities — Analyst

No, I think Europe being in trouble, probably, is good news for us because they will try to more outsource and the production cost of the local surfactant guys which any which ways is sold at a very thin margin, for them to complete will be very difficult. So for AMET market, we’ll become even more efficient to look at in the Europe, doesn’t it make us even more efficient to export from AMET to Europe and that market opens up very well for us?

K Natarajan — Executive Director & Chief Operating Officer

So that’s what I said was, as we do see — because of the various geopolitical situation and the energy crisis, we have challenges that we need to be very properly managing and is also present us with opportunities that we as a team are well geared to leverage on. So you’re right, if this particular hypothesis that you have, is something really good and if it pans that way, we certainly would be well-positioned to be leveraging on that opportunity. You’re right.

Sanjesh Jain — ICICI Securities — Analyst

My question is…

Operator

Mr. Jain, I’m sorry to interrupt, sir, but we’ll have to just proceed with the next question.

Sanjesh Jain — ICICI Securities — Analyst

Okay. Thanks. Thank you, sir. Thank you very much.

K Natarajan — Executive Director & Chief Operating Officer

Yeah.

Operator

The next question is from the line of Rohit Nagraj from Centrum Broking. Kindly proceed.

Rohit Nagraj — Centrum Broking — Analyst

Yeah, sir. Thanks for the opportunity. One question on how historically the FMCG companies pricing has behaved during such events like hyperinflation. Generally, once the FMCG consumers product is priced at a particular level, usually those prices do not correct. So historically, what is our understanding of the same in the last maybe 20, 25 years. Thank you.

K Natarajan — Executive Director & Chief Operating Officer

Yeah, so, what we’ve seen is that it is all based on how the consumers respond. So overall, if it doesn’t pinch the consumers too much in terms of the disposable income then they would not mind continuing the high prices, but if you ask my personal opinion in terms of what would be the response to the current situation, I think everyone wants to be incentivizing consumer demand and they would certainly end up passing on any reductions, but yes, they would want that to get going to sustain. So they did not want to be reducing or increasing it again. So they would probably wait for some months, but surely everyone wants to pass on because they want the demand to come back to the robust levels that they have seen earlier.

Rohit Nagraj — Centrum Broking — Analyst

Right, Sir. Second is the bookkeeping question, we had seen that by end of FY ’22, the debt has increased and given that we have very strong cash flow during Q1, how has been the debt situation at the end of the quarter, has it reduced substantially and reducing over the next two quarters just similar kind of result in coming?

Unnathan Shekhar — Promoter and Managing Director

Yeah, Abhijit, our CFO, will respond.

Abhijit Damle — Chief Financial Officer

Yeah, hi. So the overall debt situation continues to be at the same levels that we had in the previous quarter with debt equity ratios of around 0.2 and this will, going ahead, I mean, there won’t be any significant change going ahead till the end of the year.

Rohit Nagraj — Centrum Broking — Analyst

Sure. Thank you so much. Understood.

Operator

Thank you. The next question is from the line of Mayank Purohit from Kamakhya Wealth Management. Kindly proceed.

Mayank Purohit — Kamakhya Wealth Management — Analyst

Yeah, hi. Thank you so much for question. So, sir, I’m just trying to understand, so there being two reasons here. First is that obviously there has been constraints on the volume side, as we were talking about inflationary scenarios in your target markets. And secondly, with your RM prices coming down, as you’d already mentioned that even the lower prices, you will have to be passing them on to the consumers. So I’m just trying to understand, sir, like in both ways, these situations are not really working in our favor. So what exactly are the growth drivers for say the coming two, three quarters, or is this scenario just going to be like this, and probably, we’ll just have to wait and see what is going to happen or do you have some kind of a strategy here?

Unnathan Shekhar — Promoter and Managing Director

See, let us admit and acknowledge that the consumer demand is a very, very extremely important parameter. If the consumer doesn’t buy, I don’t think any unique strategy will make your sales grow. So it is important that the consumer demand comes back to robust levels. Now, all indications are right for that to happen because the commodity prices are correcting and you are also seeing some of the festival seasons coming back. People today, obviously when we are coming back to normalcy with respect to daily life, I mean maybe for the first time in India we’ll be celebrating the festivals in full mission in this year, whether it is your Ganesh Chaturthi or Diwali. So this should certainly augur well as far as consumption is concerned.

So our strategy is to ensure that we have a rhythmic operations, we are able to respond to our customer needs very well, which was a concern in the last 18 to 24 months because of supply chain disruptions. I’m not talking about just Indian customers, I’m talking about our global customers. India as well as global. So we would want to ensure that we are able to very — in an agile and a prompt way, and a consistent way, able to respond to various consumer needs with respect to demand. The consumer demand will come back.

And thirdly, the inflation to correct, because that will ensure that the wallet of a consumer is able to appropriately devote, some of it, to the prestige products which is what has driven the Specialty portfolio, and which should drive the Specialty portfolio consistently. See, when there is a stress with respect to his wallet, the consumer reverts back to minimalism. Actually, it is minimal, whatever he wants to consume. That is what we have seen. We have also seen, for example, the reflection of this is consumers going back to store brands as far as dollar store brands in USA. And the same thing happens even in India. So these are the sort of situations that we would hope correct themselves in the coming quarters.

Mayank Purohit — Kamakhya Wealth Management — Analyst

All right. Understood. And sir, lastly just one final question, you had mentioned earlier that you’re looking to do capex of about INR150 crores per annum for the coming one or two years. So could you just elaborate a little bit more on that? Whether, are you going for more capacity enhancements or is this just regular maintenance capex?

Unnathan Shekhar — Promoter and Managing Director

If we maintain that, that will continue. We would have a capex of approximately INR150 crores year-on-year.

Mayank Purohit — Kamakhya Wealth Management — Analyst

No, no. Sir, my question was whether this is going for capacity enhancements or is this general maintenance capex only.

Unnathan Shekhar — Promoter and Managing Director

No, no, it will also be capacity enhancements. Some are already underway.

Mayank Purohit — Kamakhya Wealth Management — Analyst

Okay. Okay, understood. Thanks a lot, sir.

Operator

Thank you. The next question is from the line of Rohan Gupta from Edelweiss. Kindly proceed.

Rohan Gupta — Edelweiss Securities — Analyst

Yeah, hi, sir. Thank you for the follow-up. Sir, first question is on working capital itself. So last year because of the sharp increase in input prices, we have seen a large part of our cash flows was deployed in working capital and that led to almost flattening of the debt level and even also it was added up with the capex, which you had close to INR200 crores plus spend there. This year, we see that the reverse is likely to happen with the falling raw material prices, and we are expecting some release of the working capital. Just to give some numbers on the balance sheet, last year, we had deployed close to INR350 crore additional working capital.

So, the question remains the same, sir, that with the surplus cash flows which we have this year at the end of FY ’23, and even if we save some money from working capital and it is going to be negative this year, so not only this, apart from that, debt, we should be ending up with this solid cash and EBITDA at the end of the year. Do we have any plans given the limited capex plan we have, do you have any plan for rewarding to shareholders in terms of additional distribution through dividends or any buybacks?

Abhijit Damle — Chief Financial Officer

See, this is working capital increase that has happened has essentially basically happened from the borrowings and this will be distributed in the different jurisdictions in different subsidiaries. So as the raw material prices correct, obviously there is also going to be a release of working capital, which will essentially go to reduce the borrowings.

Rohan Gupta — Edelweiss Securities — Analyst

Okay so you are saying that we still won’t be having a surplus cash on the balance sheet to distribute to the shareholders?

Abhijit Damle — Chief Financial Officer

Yeah, yeah, correct. You’re right.

Rohan Gupta — Edelweiss Securities — Analyst

Okay. Sir, second question is on our realization. So definitely, even in the current quarter also, we have seen that on quarter-on-quarter basis also, the realizations of Performance and Specialty has gone up by close to 14% to 15% on Q-on-Q basis itself, with the Performance Surfactants materializing from INR172,000 to close to INR200,000 and Specialty from INR200,000 to INR230,000. That is 15% increase.

However, the raw material prices have fallen on quarter-on-quarter basis by close to 20%. So I understand, that is because of the lag. So we see that the Q2 itself this will correct and the realizations has already started coming down and our net realization will be down by close to 15% to 20% from Q2 itself, or it will take some time to get it reflected in the revenues?

K Natarajan — Executive Director & Chief Operating Officer

No, so what is important, Rohit, is that we need to ensure that we are able to calibrate appropriately in terms of how the market responds to the lower commodity prices, because it’s important that we respond well. And that’s what we will do.How it pans out in terms of margins, is something, as a consequence, but we do see — we will do everything that is required to be done in a very calibrated way. It’s just that we protect value as well as our market. So that’s the approach we will take. Subsequently, how it pans out, will be a consequence, but we do see that things will start — as always, we need to correct the prices in terms of the way the feedstock prices are correcting because otherwise your demand can get impacted. So we will do what is appropriate.

Rohan Gupta — Edelweiss Securities — Analyst

Okay and sir, just last from my side, and this is on basically our new product launches, like Galsoft and Hearth, in terms of pods, which we have launched this year. How is the performance of Galsoft and Galguard and Hearth, which is coming and do you see that any major breakthroughs in any new product basket which we have for FY ’23, which can be a significant driver for us?

K Natarajan — Executive Director & Chief Operating Officer

As I said it progressed well in terms of certain projects in the pipeline majorly with the customers, but there are good amount of production pipelines that are in advanced stage in terms of a commercializing, but we to keep our fingers crossed with the current situation as we explained in terms of recession and inflation. We need to see as to how quickly this product gets rolled out, so we need to wait, but yes, in terms our engagement with the customers and the way that we are progressing it is in a pretty good state.

Rohan Gupta — Edelweiss Securities — Analyst

That’s it, sir, from my side. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Unnathan Shekhar — Promoter and Managing Director

Yes, thank you. Thank you, ladies and gentlemen. We would once again meet in about three months from now. Thank you, once again.

K Natarajan — Executive Director & Chief Operating Officer

Thank you.

Operator

[Operator Closing Remarks]